European Central Bank Guide to the European Central Bank

European Central Bank

The European Central Bank (ECB) is one of the most important financial institutions in the world and its policies affect millions of European citizens, but what does it actually do? This guide will tell you what you need to know.

What is the European Central Bank (ECB)?

The ECB Is the successor of the European Monetary institute. The EMI was used to prepare countries for the introduction of the single currency the Euro. The ECB is located in Frankfurt, Germany and was formed in 1998 after the signing of the treaty of Amsterdam. Currently the ECB’S president is the former head of the bank of Italy Mario Draghi. The ECB administers the monetary policy of the EU member states which means it makes most of the big financial decisions for the 17 member nations.

The main objective for the ECB is to keep inflation low (at 2%) and keep prices stable throughout the Eurozone.  It also deals with foreign exchange deals and ensures that it has ample reserves of foreign currency.  The ECB has the exclusive right to issue more Euro banknotes into circulation and is the only bank within the 17 members that can carry out quantitative easing. The member states can issue coins but they have to go through the ECB first.

The board of the ECB is called the Governing council and is comprised of the executives of the ECB and the governors of the member nation’s national banks. The council is responsible for the key policy decisions and carries out the day to day running of the bank.

Roles of the European Central Bank

The ECB’s main task is to implement and define the monetary policy of the Eurozone, to promote smooth operations of the financial markets and to conduct foreign exchange transactions. The ECB is playing a pivotal role in the Eurozone crisis. It has pumped millions of Euros into the failing economies of Greece, Ireland and Portugal.

The ECB has begun to purchase member nations debt and increased the amount it needs in capital. Controversially the ECB has asked central banks from other EU countries to provide extra funds to assist in bailing out the weaker countries. It is believed that the ECB will need up to €2 trillion to pay off its members debts.